Micro

Production & Costs

Medium

From the following which production function exhibits increasing returns to scale?

$f(tx, ty) > t f(x, y)$ .

$f(tx, ty) < t f(x, y)$ .

$f(tx, ty) = t f(x, y)$ .

$x^α y^β$ .

✅ Correct Option: 1

Option 1 -> This is the definition of increasing returns to scale where output increases by more than the proportional increase in inputs.

Option 2 -> This represents decreasing returns to scale where output increases by less than the proportional increase in inputs.

Option 3 -> This represents constant returns to scale where output increases proportionally with inputs.

Option 4 -> This is a Cobb-Douglas function; its returns to scale depend on α+β (increasing if α+β>1, constant if α+β=1, decreasing if α+β<1).

Hence, Option 1: f(tx, ty) > t f(x, y) -> This is the mathematical definition of increasing returns to scale. When all inputs (x, y) are scaled by factor t > 1, the output f(tx, ty) increases by more than t times the original output f(x, y). This occurs in production processes with economies of scale, specialization, or network effects. For example, if doubling inputs (t=2) more than doubles output, the firm benefits from increasing returns to scale. -> correct

2025: 29 May Shift 2

Arrange the following statements in chronological order in respect to the impact of a unit tax on supply:

(A) Imposition of unit tax increases the price of commodities.

(B) Increased prices will lead to an increase in LRAC and LRMC.

(D) At any given market price, the firm supplies fewer units of output.

Choose the correct answer from the options given below:

2025: 22 May Shift 1

In the long run, average cost must be rising as the firm increases output as long as the.......... operates.

2025: 13 May Shift 1

Which of the following conditions must hold for a firm to maximise its profit.

(A) Price= Short run marginal Cost

(B) Short Run marginal cost curve is non-decreasing

(D) Price ≥ Average variable cost

Choose the correct answer from the options given below:

2025: 3 June Shift 1

Which one of the following leads to the law of variable proportions?

2026: 6 June Shift 1

Match List-I with List-II

List-I	List-II
(A) Constant returns to scale	(I) When a proportional increase in all inputs results in an increase in output by a larger proportion.
(B) Decreasing Returns to Scale	(II) The relationship between inputs used and output produced by the firm.
(C) Increasing Returns to Scale	(III) When a proportional increase in all inputs results in an increase in output by a smaller proportion.
(D) Production function	(IV) When a proportional increase in all inputs results in an increase in output by the same proportion.

Choose the correct answer from the options given below:

2025: 28 May Shift 1

How is the value of the average product calculated in the short-run?

By dividing the total product by the number of labor.
By dividing the change in total product by the change in labor.
By dividing the change in total product by the number of labor.
By dividing the total product by the change in labor.

From the following which production function exhibits increasing returns to scale?

Solution

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